Does Index Futures Dominate Index Spot? Evidence from Taiwan Market

Ching-Chung Lin (), Shen-Yuan Chen (), Dar-Yeh Hwang () and Chien-Fu Lin ()
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Ching-Chung Lin: Department of Business Administration, National Cheng Kung University and Kao-Yuan Institute of Technology, Taiwan, R.O.C.
Shen-Yuan Chen: Department of Finance, Ming Chuan University, Taiwan, R.O.C.
Dar-Yeh Hwang: Department of Finance, National Taiwan University, Taiwan, R.O.C.
Chien-Fu Lin: Department of Economics, National Taiwan University, Taiwan, R.O.C.

Review of Pacific Basin Financial Markets and Policies (RPBFMP), 2002, vol. 05, issue 02, 255-275

Abstract: By utilizing vector error correction model (VECM) and EGARCH model, this article uses 5-minute intraday data to examine the interaction of return and volatility between Taiwan Stock Exchange Capitalization Weighted Stock Index (TAIEX) and the newly introduced TAIEX futures. VECM model shows that there exists bi-directional Granger causality between index spot and index futures markets, but spot market plays a more important role in price discovery. The results of impulse response function and information share indicate that most of the price discovery happens in index spot market. The evidence of EGRACH shows that the impacts of spot and futures innovations are asymmetrical, and the volatility spillovers between spot and futures markets are bi-directional. However, the information flow from spot to futures is stronger. These results suggest that the TAIEX spot market dominates the TAIEX futures market in terms of return and volatility.

Keywords: EGARCH; Lead-lag; Price discovery; Taiwan; Volatility (search for similar items in EconPapers)
JEL-codes: G1 G2 G3 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (14)

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DOI: 10.1142/S021909150200078X

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